The Market Understands What's Really Happening With The Fiscal Cliff

Believers in efficient markets should be very heartened by the behavior of equities lately.

Despite over-the-top hype from the media about the Fiscal Cliff, and the notion that the entire market is on pins and needles, ready to freak out at every utterance from Boehner, Reid, and McConnell, the fact of the matter is that markets have been incredibly calm.

First, there's this chart from Blackrock showing that the VIX (an options-based measure of market volatility and fear) has not freaked out at all, despite the fact that "uncertainty" (as measured by a headlines-based index) is spiking again.

Beyond, the "wild gyrations" everyone is talking about are just not happening.

The Dow was up 50 points earlier, then Boehner came out and said there wasn't much progress, and the markets went all the to... flat. Now it's up 30. These are tiny moves, not wild gyrations that match the suggestion of breathless freakouts.

Reporters (who are looking for some hair of the dog, to get over the hangover from the election and the financial crisis) are obviously having fun blowing up every comment and every market move. But reality is that this is a boring, low volatility market that's taking everything in stride.

As for the cliff, the reporting says they're getting close to a deal, and beyond that there's reason to think that if there's no deal, things would be solved fairly early next year.